\section{Network effects, lock-in and path dependency}
\label{sec:networkeffect}
In this section we will present the theoretical concepts of network effects, lock-in and path dependency. This will provide a common language for discussion later. Our research question is focused on the barriers in ICN transition. So, it is inherently important for us to take a closer look on these concepts.

\subsection{Network effects}
The age of information is more focused on creating larger networks than selling product. Varian and Shapiro explains it as, \textit{``the old industrial economy was driven by economies of scale; die new information economy is driven by the economics of networks''} \citep[p. 173]{VARIAN}. \bigskip

\noindent Communication networks are highly influenced by network effects, where an increasing number of users increases the value of the product. This phenomenon is referred as network effects or network externalities. Stango describes this very clearly by providing an example of a fax machine:

\begin{quote}

\textit{``If no consumer have fax machines, then no one consumer will want to adopt the first fax machine, because a fax machine has no stand-alone value if it cannot communicate with other machines.''} \citep[p. 5]{STANGO}

\end{quote}
Stango argues that use of common standards allows more users to communicate and create more value. This can be seen in case of Internet, where there is one common standard i.e. IP based standard or host-centric standard. Varian and Shapiro have also described the term network externalities as virtual networks, which \textit{``arise when one market participant affects others without compensation being paid''} \citep[p. 183]{VARIAN}.\bigskip

\noindent Varian and Shapiro distinguish network effects into positive and negative ones. In their terms, the example above is a positive network effect, where more value is created as more users join the network. Indirect network effects arises when \textit{``adoption itself does not confer benefits on other users of the system''} \citep[p. 3]{STANGO}. One of the example of negative feedback is pollution \citep[p. 183]{VARIAN}.\bigskip

\noindent Positive network effect produces positive feedback. This is further explained by Varian and Shapiro:
\begin{quote}

\textit{``when i buy a fax machine, the value of your fax machine is enhanced since you can now send faxes to me and receive faxes from me. Even if you don't have a fax machine yet, you are tempted to get one yourself since you can now use it to communicate with me.''}	\citep[p. 183]{VARIAN}

\end{quote}

\subsection{Positive Feedback and Negative Feedback}
A discussion about positive feedback is inevitable while discussing the economics of information technology. According to Varian and Shapiro,
 \begin{quote}
 \textit{``Positive feedback makes the strong get stronger and the weak get weaker, leading to extreme outcomes.''} \citep[p. 175]{VARIAN}
 \end{quote}
In opposite is the negative feedback where \textit{``the strong get weaker and the weak get stronger, pushing both toward a happy medium''} \citep[p. 176]{VARIAN}.
 
Furthermore, Varian and Shapiro describes that \textit{``[w]hen two or more firms compete for a market where there is strong positive feedback, only one may emerge as the winner. Economists say that such a market is tippy, meaning that it can tip in favour of one player or another''} \citep[p. 176]{VARIAN}.\bigskip

\noindent On the basis of the theoretical discussion on network externalities and positive/negative feedback it can be argued that Internet is enhanced by positive externalities and positive feedback to the extreme. It is accompanied by a high installed base of users, which has made it the most valued network. This creates a burden of very high switching costs for network users. As explained by Varian and Shapiro,
\begin{quote}
\textit{``[...] every new networks has to start from scratch. The challenge to companies seeking to introduce new but incompatible technology into market is to build network size by overcoming the collective switching costs-that is, the combined switching costs of all users.''} \citep[p. 184]{VARIAN}
\end{quote}
Changing the current Internet architecture is a topic of unfinished discussion and the approach (evolutionary or clean-slate) is not clear yet, but one can argue that a clean-slate approach is almost impossible looking at the collective switching cost. 

When positive feedback takes place and \textit{``success feeds on itself,''} the virtuous cycle starts. But \textit{``[t]he virtuous cycle of growth can easily change to a vicious cycle of collapse''} \citep[p. 176]{VARIAN}. This can also support our research topic by arguing that virtuous cycle is seen in the growth of Internet but the potential problems arising in the Internet may lead to a vicious cycle.

\subsection{Lock-in}
\label{subsec:lockin}
Network effects can yield many different market conditions. One such condition is lock-in. Stango defines lock-in as \textit{``a situation in which economic agents' equilibrium decisions regarding standards adoption yield lower social welfare than an alternative''} \citep[p. 4]{STANGO}.

In general, lock-in is a situation where one gets stuck into an environment because of its dependence on it. Varian and Shapiro explain that lock-in can be also the result of high switching costs. They further elaborate that \textit{``[w]hen the cost of switching from one brand of technology to another are substantial, users face lock-in''} \citep[p. 104]{VARIAN}. \bigskip

So, lock-in can act as a tool for an incumbent company for keeping their installed base of customers, whereas it can act as a barrier for new entrants. Different types of lock-in explained by Varian Shapiro are: \textit{``contractual commitments, durable purchases, brand-specific training, information and databases, specialized suppliers, search costs, loyalty programs''} \citep[p. 117]{VARIAN}. And each of these types have their own associated switching cost.\bigskip

\noindent One can also argue that all kinds of lock-in can be found in current Internet paradigm which as mentioned is associated with extremely high switching costs. These very high switching costs also act as negative incentives for users to change into new network. 

\subsection{Path Dependence}
When talking about the future and lock-in, it is inevitable to include path dependence theory, which refers to how \textit{``[o]utcomes depend critically on history''} \citep[p. 49]{LIEBOWITZ}. \bigskip

\noindent Liebowitz and Margolis explain path dependence where they say,
\begin{quote}
\textit{``[w]hat you have today depends upon conditions that prevailed and decisions you made at some time in the past.''} \citep[p. 53]{LIEBOWITZ} 
\end{quote}
They distinguish path dependency in to three degrees depending on the efficiency and error on prediction \citep[p. 53]{LIEBOWITZ}:

\begin{description}
\item[First-Degree Path Dependence] This  is when you make decisions based on correct predictions about the future. At any point of time the decisions made may not seem optimal but at the end they do no harm.

\item[Second-Degree Path Dependence] This is when the decision made at a point of time does not act efficiently in the future. This may be due to lack of knowledge or information at the time of making the decision. It can be that the \textit{``[decisions made] are efficient given the information that is available at the time of the decision, but may not turn out to be efficient in retrospect''} \citep[p. 53]{LIEBOWITZ}. This degree of path dependence may lead to outcomes that are regrettable and costly to change.

\item[Third-Degree Path Dependence] This is when the inefficiencies are remediable. It is also defined as \textit{``a kind of path dependence that asserts an economic inefficiency, a market failure''} \citep[p. 55]{LIEBOWITZ}.
\end{description}

\noindent This brief description of path-dependency will provide us a common understanding for discussion on path dependence. \bigskip

\noindent The Internet, as a multi-stakeholder platform, is a result of individual decisions of many stakeholders, where
 \begin{quote}
 \textit{``[e]ach private decision is a good one, conditional on the prior commitments of resources, but the achieved larger outcome need not be the best version of that larger outcome from the set of possible outcomes available at the outset.''} \citep[p. 49]{LIEBOWITZ}
 \end{quote}
The degree of path dependency in the development of Internet can be seen as a third-degree path dependence, because there is an evidence that the current Internet architecture is not working optimally or efficiently, and researchers have also argued that these problems are remedial. On the other hand, the investors might argue that research is not evidence but only predictions, and so they are only dealing with second-degree path dependence, where all stakeholders have the possibility to make wrong predictions because of lack in knowledge or imperfect information \citep[p. 53]{LIEBOWITZ}. 




